Prudential Selling To KWAP

British insurer Prudential plc is in advanced talks with Malaysia’s No 2 pension fund to sell a 30% stake in its Malaysian unit valued at about US$435 million (RM1.7 billion), said people with knowledge of the matter, as the insurer looks to comply with new foreign ownership rules.

The discussions between Prudential Assurance Malaysia Bhd and Retirement Fund Inc (KWAP) are not exclusive, and details of a possible deal could be finalised as early as this month, said the people.

Foreign insurers are required to cut their stakes in their local units to 30% to abide by a directive announced by Malaysia’s central bank last year, under an initiative to lift domestic participation in the industry.

That has prompted a rush from the likes of Prudential, Tokio Marine Holdings Inc and Zurich Insurance Group Ltd in Malaysia to find ways of divesting stakes and submit their plans to the regulator before a June deadline.

The wholly owned Malaysian life insurance unit of Britain’s largest insurer by assets is one of the leading foreign insurers in the South- East Asian country.

KWAP CEO Datuk Wan Kamaruzaman Wan Ahmad told Reuters that the fund had submitted its offer for the Prudential unit’s stake, but declined to give details. Prudential did not comment on the talks, but said it is committed to its local business.

There is no certainty that Prudential’s talk with KWAP will result in a deal, and the former could also weigh a listing on the Malaysian bourse to divest the stake, said the people, who declined to be identified because the talks were not public.

The Malaysian regulator’s new rule had stoked some concern among foreign insurers as a small number of large local funds in the country meant they will be competing for the same pool of institutional investors.

Foreign ownership of Malaysian insurers was set in 2009 at 70% — or more if the buyer could help consolidate and rationalise the industry.

But some foreign insurers operating in the country could still be wholly owned by an overseas parent.

Prudential’s Malaysian unit, whose net premium earnings rose 3.3% to RM3.1 billion in the six-month period ended June 2017, has an embedded value of about RM5.5 billion, one of the people said.

That values a 30% stake in the unit at RM1.7 billion.

Embedded value is the net asset value of an insurer plus the present value of potential future profits from existing life and health insurance contracts.